2012 Automotive Logistics Special: Om Logistics in consolidation mode
Inbound logistics is undertaken from supplier to the OEM plant and paid for by suppliers. In GM India’s case, Om is paid by the OEM to pick up parts from suppliers.
Spinning off its logistics arm in 1983, Om kicked off movement of completely built cars for Maruti Suzuki and Tata Motors on the Gurgaon-Pune line. Specially designed high-cube double-decker truck carriers are used for transportation from the manufacturer’s facility to the dealers outlets.
Chassis for these car carriers are sourced from Tata Motors with body fabrication undertaken as per customer requirement by local body builders at Gurgaon. Om has a fleet of 2,500 trucks with 200 specialised trucks being leveraged as car carriers for Maruti and Tata. While the company owns about 700 trucks, the rest are attached to it through small vendors.
For Maruti and Tata Motors together, it moves 1,500 cars every month. It collects Maruti’s cars from Gurgaon and Manesar and on the return journey brings the cargo from Tata’s Pune plant. Om was badly impacted by the recent lockout at Maruti’sManesar plant as it shored up haulage time for the trucks and slowed down their turnaround time (TAT) as car carriers cannot be used for any other operation.
Om is a small player in car logistics and Ajay Singhal, chairman and managing director, says that the company operates on wafer-thin margins. The company estimates that it lost a few lakhs on account of the Maruti factory lockout every day.
In terms of component vendors, Om does not have any fixed investment for customers and trucks can be diversified to other streams of business. The topline though was a trifle squeezed due to the stoppage of parts supplies to Maruti’sManesar plant.
Suppliers key to growth
The chunk of Om Logistics business rests on the services it extends to 80 percent of the suppliers pan India with some of the biggies being Shriram Pistons, Delphi Automotive and Federal-Mogul though other important customers include the Minda Group, Anand Group and Lumax besides Tier 2 companies.
According to AkashBansal, head – logistics, the company interacts with all OE manufacturers whether two-wheeler makers, carmakers or commercial vehicle manufacturers through their suppliers. About 90 percent of the suppliers today harness logistics services for transporting components from their facility to the OEM plant to meet just-in- time requirements of the vehicle manufacturers.
However, vehicle manufacturers like Maruti Suzuki, General Motors India, Mahindra & Mahindra and Tata Motors operate on different protocols; for instance, Maruti functions on a vendor-managed inventory model. So while the end customer is the carmaker, the logistics is offloaded to vendors who organise the transportation for MSIL in sync with Om.
The company manages the warehouse for Maruti as well as its entire logistics activity. While car logistics for MSIL and Tata constitutes outbound logistics, the rest falls under the ambit of inbound logistics besides which is the distribution of spares from OEM to dealer or spares distribution centres.
Inbound logistics is undertaken from supplier to the OEM plant and paid for by suppliers. In GM India’s case, Om is paid by the OEM to pick up parts from suppliers. Others in this genre are JCB and Ford. Tata Motors and M&M operate on both models while Maruti pays only in exigencies and Hyundai’s logistics are supplier oriented.
Om also services the export requirements of its clients via an active joint venture in China with JJ Shipping, a couple of overseas offices besides multiple global partners. It undertakes logistics for both imports and exports for HDL Automotive, Jindals, Senior India and a number of Japanese customers besides project movements for Suzuki Powertrain mostly by sea.
Annual contracts exist with global transportation and logistics players involved in shipping such as APL and Maersk Line. Bansal says the company maintains lead time for imports and exports depending on location to location; within India, a six-to-seven-day inventory is kept in warehouses. Om currently has 45 warehouses across the country and has plans to invest in more as it has a large land bank available.
Increasing warehousing space
The company's target is to set up two greenfield warehouses every year and the new ones are in various stages of coming up at Ahmedabad, where a 45,000 square feet space is under construction as well as at Chennai. The new Faridabad warehouse is almost ready. Work at Bangalore (150,000 square feet) will commence soon reaching completion in 2013. All the warehouses are shared for various streams of businesses with investments ranging around Rs 15 crore for 100,000 square feet of space.
Other proposed warehouses are at Bhinola (150,000 square feet), Bhiwadi (150,000 square feet) and Chennai (100,000 square feet) with funding mostly through internal accruals as well as Meryll Lynch debt funding. Lynch invested $20 million in the logistics firm in 2007-08.
Besides trucking, air carriers are leveraged for domestic movements constituting about 2,000 metric tonnes of cargo monthly including components, electronics and pharma products. On the other hand, 45 to 50 trucks move on the Delhi- to-Pune lane daily.
Company officials view the business potential of the logistics business as enormous as today no sector can operate in its absence. Though still in a nascent stage of development, logistics is aRs 300,000 crore industry with only Rs 30,000 crore constituting the organised share.
Meanwhile, the industry is in crying need for reform as it suffers from the unorganised stigma. Infrastructure development is in dire need as 60 percent of the cargo movement is through trucks. Though the government is developing the Golden Quadrilateral, better roads are also the need of the hour. An interstate policy for accelerating the enforcement of the GST to streamline inordinate delays at state bordersand undue harassment for payments as each state has a different interstate policy has to be still tackled.
However, a reprieve has been in the form of a flat permits policy announced by the Centre for truck movement. Normally, each truck has to be issued permits for movement in each state or face entry taxes that leads to a chaotic situation at the borders. The new policy involves a one-time payment for all states which enables any truck to enter any state.
Om today holds a 0.5 percent market share in the total industry but has chalked out a clear-cut strategy for further growth. It is targeting new multinational companies coming to India for beefing up its revenues like Foton Motors with whom it is believed to be in discussions as well as Nissan, besides eyeing the small parcels retail line of business that is cost effective. Expansion in SAARC countries is also on the cards with Nepal and Pakistan on its radar. Plans are also underway to set up warehouses, a service network or a delivery centre with minimum investments or through a joint venture in these regions.
Singhal says that SAARC countries offer a very good platform for growing the logistics business as the existing conditions are not conducive. But India still lags behind western countries though these geographies have higher freight and manpower costs. Om, in a bid to modernise its services, is importing best practices like the Japanese kaizen in warehousing.
It is also imparting training to drivers through an ongoing training programme to further its business prospects. At present, 65 percent of the company’s revenues accrue from inbound logistics, 20 percent from outbound and 15 percent via spares distribution for Skoda, Volkswagen, Tata and Bajaj Auto. Overall, the logistics player is optimistic that there will be substantial business growth for the company going forward and that new clientele is on its way.
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